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CSM 204: TEST 2
Baby Boomers = ___ % of the population, ___ % debt
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30 %, 60%
-should be paying off debt by that age not acquiring it
-ages 35-65
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credit
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-an arrangement to receive goods or services now and pay later
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consumer credit
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-credit used for personal needs other than a home
-ties up future income
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advantages of credit
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-current use of goods and services
-may purchase when funds are low
-cushion for emergencies
-advance notice of sales
-easier to return merchandise
-convenient when shopping
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more advantages of credit
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-one monthly payment
-safer than cash
-needed for reservations and online transactions
-float time and grace period
-rewards programs
-indicates financial stability
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disadvantages of credit
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-temptation to overspend
-potential damage to credit rating
-DOES NOT increase total purchasing power
-credit costs money
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types of credit
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open-ended and closed-ended
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closed-ended credit
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-installment loans
-single pay loans
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open-ended credit
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-credit cards- short term
-lines of credit
-stays open unless you close it, or are forced to close it because of abuse
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open ended credit- (travel and entertainment cards)
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-not really credit cards
-monthly balance is due in full
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-not really credit cards
-monthly balance is due in full
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-based on equity in your home
-resolving line of credit
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measuring credit capacity
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-check your budget
-compute the ratios
-debt payments to income ratio (want 20% or less)
-debt to equity ratio
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_____ affects measuring your credit capacity
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-co-signing affects your capacity
-guaranteeing someone's debt
-you may have to pay
-can damage your credit rating
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when dealing with your credit report you should...
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-build and maintain your rating
-limit borrowing
-pay on time
-control the number of inquiries
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you obtain your credit report from...
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-credit bureaus
-Equifax
-Trans Union
-Experian
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Get credit report at
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annualcreditreport.com
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Fair credit reporting act
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-regulates the use of credit reports
-companies must correct inaccurate or incomplete information
-only authorized persons have access to your information
-adverse (harmful) data can be reported for 7 yrs and and bankruptcy for 10
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The 5 C's of credit
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-Character- attitude toward repaying debt
-Capacity- financial status, can you afford?
-Capital- how much you have saved, savings accts
-Collateral- security for loan
-Conditions- job security, "strike" example
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to correct credit errors you should notify creditor in ________ within ___ days
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writing, 60
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to correct credit errors you should include _____________ and ________________
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-account number
-explanation of error
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to correct credit errors the creditor must respond in ___ days
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30
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to correct credit errors there should be ____ billing cycles, but no longer than ___ days to make a correction
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2, 90
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while correcting a credit error your credit rating is __________ while item is still in dispute
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-unaffected
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consumer credit laws
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-must report credit accurately
-have to disclose APR
-bills must be correct
-prohibits discrimination
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consumer credit laws
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-truth in lending act
-fair credit reporting act
-fair credit billing act
-equal credit opportunity act
-fair debt collection practices act
-consumer credit reporting reform act
-fair and accurate credit transactions
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types of loans
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inexpensive loans
medium priced loans
expensive loans
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inexpensive loans
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-family
-least expensive loan, should be in writing, could turn out to be a gift
-secured with savings
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medium-priced loans
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-most common loans people get
-banks, savings and loans, credit unions
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expensive loans
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-interest rates are much higher
-finance companies
-check cashing services
-retailers
-credit cards
-cash advances
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finance charge
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is the total dollar amount you pay to use credit
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annual percentage rate (APR)
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is the percentage cost of credit on a yearly basis
-true rate of interest so you can compare rates with other sources of credit.
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trade-offs of credit- (term versus interest cost)-
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-longer loans, lower payments, but more total interest
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trade-offs of credit- (lender rick versus interest rate)-
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-to reduce the lender's risk and the interest rate:
-accept a variable interest rate
-provide collateral to secure the loan
-make a large down payment up front
-have a shorter loan term
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calculating the cost of credit
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-simple interest
-simple interest on the declining balance (the one you want, best choice)
-add-on interest
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cost of open-ended credit
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-adjusted balance method
-average daily balance method (the one you want)
-two cycles average daily balance method
-previous balance method
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why consumers don't pay
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not always because they are thieves
-poor money management, excessive use of credit, unemployment, divorce/separation, medical expenses, etc.
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reasons for debt
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-emotional, revenge, expectation of instant comfort, keeping up with the Joneses, overindulgence in children, misunderstanding or lack of communication, amount of finance charges makes it difficult to repay, etc.
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debt warning signs (DWS)- paying only the _______, growing ______, missing or late ________
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-minimum
-balances
-payments
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DWS- ________ using overdraft protection, dipping into _______ regularly, not discussing _____ or ____ discussing money.
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-intentionally
-savings
-money, only
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DWS- depending on overtime ____, not knowing how much you ____, ________ credit limits, no _______,
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-pay
-owe
-limits
-savings
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DWS- being denied _____, having your credit card _______, postponing _______ visits
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-credit
-revoked
-medical
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when getting help with debt, you should go to
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-consumer credit counseling services
-your financial institution
-universities, extension, military bases
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what if you become overextended
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-pay off smallest balances first
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Types of bankruptcy
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-chapter 7
-chapter 13
-both bankruptcy and both affect use of credit
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chapter 7 bankruptcy
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straight bankruptcy- immediate liquidation plan, they sell everything you have and wipe debt
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chapter 13 bankruptcy
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regular income plan- wage earner plan, pay off slo
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financial implications of consumer decisions
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-paying higher prices due to credit use
-paying less and getting poor quality
-selecting brands that are difficult to repair
-ordering online, by phone or mail may be easier but returns are not
-takes time to comparison shop
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economic factors of purchasing
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-consumer prices, interest rates, supply/demand, brand name, warranty, product quality, tax rates, govt regs
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social factors of purchasing
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- lifestyle, culture, attitudes, ads, media/internet, hobbies, peer group
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personal factors
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-sex and age, marital status, occupation, income, education, family size, housing type, ethnic group, religion
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practical purchasing strategies
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-timing purchases, store selection, brand comparison, label information, price comparison, evaluate warranties, service contracts
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timing purchases
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-when we buy (buy car at end of month)
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store selection
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-convenience and price
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brand comparison
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generic if same quality
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label information
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check expiration date
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price comparison
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bigger box or smaller box? (may not finish bigger box?)
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evaluate warranties
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only used 20% of the time
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service contracts
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only used 20% of the time
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1st step to pre-shopping activities
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problem identification
-needs VS wants
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2nd step to pre-shopping activities
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information gathering
-personal contacts
-media information
-independent testing organizations
-government agencies
-online sources
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while evaluating alternatives you should
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leave your significant other at home (spouse, child, etc.)
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steps to evaluating alternatives
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1)comparison shopping
2)selecting options
-mechanical
-convenience
-aesthetic
3)new or used
4)buy or lease
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sources of used vehicles
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-new car dealers
-used car dealers
-individuals
-auctions
-used car superstore
-online guides
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advantages to leasing a vehicle
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lower payments and cash outlay
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disadvantages to leasing a vehicle
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-no ownership in vehicle
-maximum number of miles set
***smarter to buy than lease
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need to know the numbers when leasing a vehicle
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-capitalized cost (car)
-money factor (interest)
-payment amount
-residual value (whats it worth in 3 yrs)
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determining purchasing price
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-know information about vehicle
-deal with person of authority to lower price
-get starting price information in advance
-get price prior to mentioning trade-in
-look for rebates or low interest rates
-compare financing alternatives
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sales techniques to avoid
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-low-balling
-high-balling
-"how much can you afford per month?"
-"just make a small deposit"
-"it is only 100 above dealer cost"
-preprinted sales agreement
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the best buy
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-first decide on quality
-features NEEDED
-then select best price
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post-purchase activities
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-automobile operation costs
-motor vehicle maintenance
-servicing sources and problems
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lemon laws
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laws that provide a remedy for purchasers of cars in order to compensate for cars that repeatedly fail to meet standards
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resolving consumer complaints- order to complain to-
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1) place of purchase
2) manufacturer's headquarters
3) consumer agency
4) legal action
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arbitrator is
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legally binding
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legal options
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-small claims court
-class action suits
-using an attorney
-legal aid society
-prepaid legal service
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opportunity costs of housing costs
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-interest income lost
-time and cost of commuting to live in less expensive area
-no tax advantages for renters
-no equity build up for renters
-time and money to repair/improve lower priced home
-time and effort to custom build
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advantages of apartment renting
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-easy to move
-less maintenance
-minimal financial commitment
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disadvantages of apartment renting
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-no tax benefits
-remodeling limitations
-restrictive covenants
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advantages to house renting
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-easy to move
-less maintenance
-minimal financial commitment
-more space than apartment
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disadvantages to house renting
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-no tax benefits
-remodeling limitations
-restrictive covenants
-higher utilities than apartment
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advantages to owning a new home
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-no previous owner
-pride of ownership
-tax benefits
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disadvantages to owning a new home
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-financial commitment
-higher expenses than renting
-limited mobility
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advantages to owning a previously owned home
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-establishes neighborhood
-pride of ownership
-tax benefits
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disadvantages to owning a previously owned home
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-financial commitment
-higher expenses than renting
-limited mobility
-possibility of repairs
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advantages of owning a condominium
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-pride of ownership
-tax benefits
-less maintenance than house
-accessibility to recreation and business district
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disadvantages of owning a condominium
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-financial commitment
-less privacy
-limited mobility
-uncertain demand
-rules
-assessments
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advantages of owning a cooperative
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-ownership is a non-profit
-stable property values
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disadvantages of owning a cooperative
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-financial commitment
-less privacy
-limited mobility
-potential disagreements
-must cover cost of vacant units
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advantages to owning a manufactured home
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-less expensive
-tax benefits
-flexibility in selection of features and appliances
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disadvantages to owning a manufactured home
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-financial commitment
-difficult to sell
-may be difficult to finance
-quality may be poor
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legal details of a lease
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-description and address of property
-name and address of the owner/landlord (lessor)
-name of tenant (lessee)
-effective date and length of the lease
-amount of security deposit
-amount and due date of rent
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renting your residence
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-location where rent is due
-date and amount for late rent payments
-list of included utilities, appliances
-restrictions on certain activities
-the right to sublet the unit
-conditions where landlord may enter rental unit
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finding and evaluating a property
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-selecting a location
-be aware of zoning laws
-assess the school system
-using a real estate agent
-conduct a home inspection or hire an inspector
-mortgage company will want an appraisal
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other financing methods
|
-buy downs
-second mortgages
-reverse mortgages- (not way to buy house, way to get equity back, only people of certain age can do this)
-refinances
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closing the deal
|
-must have savings aside
-application or organization fee
-credit report
-title insurance and search fee
-attorney's and appraiser's fee
-property survey
-pest inspection
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selling your home
|
-preparing your home
-determining the price
-selling yourself
-using a realtor
-owner financing- (don't finance unless for your own child)
-if selling home yourself, use attorney
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